Operating margin at S. Korea's large companies up on market share gains

SEOUL, Feb. 7 (Yonhap) -- The average operating margin at South Korea's large-cap
firms rose for the first time in five years in 2009, helped by their rising
global market share and falls in raw material prices, financial data showed
Sunday.
The average operating margin of the top 30 large-cap companies listed on the
Seoul bourse stood at 6.9 percent last year, up 0.6 percentage point from a year
ago, according to on-line financial information provider Fn Guide and company
filings.
Operating margin, or the ratio of operating income to net sales, measures how
much a company earns before interest and taxes on sales. The upturn is the first
since 2004, according to the data.
Analysts said an expanded overall market share is likely to have contributed to
the operating margin gains, even before the global economy has made a full-swing
recovery.
"The fact that companies could improve their operating margins despite the
financial crisis and a strong local currency indicates that many companies have
become global leaders," said Hwang Chang-joong, head of investment strategy at
Woori Investment & Securities.
Cost-cutting efforts coupled with a drop in raw material prices also contributed
to improved margin, analysts said. Crude oil prices, which spiked to US$150 per
barrel before Sept. 2008, plunged to as low as $30 during the financial crisis.
"Raw material prices, part of main sales costs, dropped substantially as a result
of the financial crisis, and it seemed to have pushed up the operating margin,"
said Lee Kyung-soo, an analyst at Taurus Investment & Securities
But analysts also noted that improved operating margins were only evident in the
information technology and auto sectors.
Hynix Semiconductor Inc., the world's second-largest maker of computer memory
chips, showed the widest gains in operating margin from minus 33.9 percent in
2008 to minus 1.5 percent last year.
Kia Motors Corp., an affiliate of Hyundai Motor Co., posted a 6.2 percent
operating margin in 2009, compared with 1.8 percent a year earlier.
"Most earnings improvements took place only in a couple of sectors, such as IT
and auto," said Woori's Hwang. "But other sectors will also see a recovery as the
economic recovery in the second half this year will be robust."
Others remained skeptical about the long-term as operating margin gains stemmed
from external factors rather than internal reform.
"Local companies should make more efforts toward cost cutting, research and
development, while expanding revenues," said Kim Hak-kyun, head of investment
strategy at SK Securities.
ylee@yna.co.kr
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